Draft Instructions for the Schedules K-2 and K-3 released to enhance reporting of international tax matters by pass-through entities https://www.irs.gov/newsroom/draft-instructions-for-the-schedules-k-2-and-k-3-released-to-enhance-reporting-of-international-tax-matters-by-pass-through-entities accountinginstruction.info WASHINGTON — The Treasury and the IRS released today early draft instructions for the Schedules K-2 and K-3 for Forms 1065, 1120-S, and 8865 for tax year 2021 (filing season 2022). The early release drafts of the instructions provide a preview of the instructions before final versions are released. The new Schedules K-2 and K-3 were released on June 3 and 4, 2021. The redesigned forms and instructions give useful guidance to partnerships, S corporations and U.S persons who are required to file Form 8865 with respect to controlled foreign partnerships on how to provide international tax information. The updated forms apply to any persons required to file Form 1065, 1120-S or 8865, but only if the entity for which the form is being filed has items of international tax relevance (generally foreign activities or foreign partners). The changes do not affect partnerships and S corporations with no items of international tax relevance. The Treasury Department and the IRS released prior drafts and instructions of Schedules K-2 and K-3 for the Form 1065 in July 2020 and engaged with stakeholders to solicit input on the changes. The final instructions respond to comments received with respect to the draft July 2020 instructions. For example, the final instructions: Clarify when each part of the schedule is applicable; Clarify that the preparer must only complete applicable parts of the Schedules K-2 and K-3; and Provide instructions for requested new separate schedules regarding determination of the section 250 deduction and the allocation and apportionment of expenses Recognizing the transitional challenges with the adoption of Schedules K-2 and K-3 by affected pass-through entities and their partners and shareholders, the Treasury Department and the IRS issued Notice 2021-39 PDF on June 30, 2021. The Notice provides certain penalty relief for the 2021 tax year.